The Apple rumor mill has been predicting a "low-cost iPhone" for so long that it's tempting to dismiss new whispers immediately. Like the fabled Apple television set, it has so far been talked up mostly by analysts and rumor sites filling time between actual product announcements.

We don't know anything about Apple's future iPhone plans, and it is the company's wont to maintain radio silence on future products until it's actually up on stage rattling off the new product's features. That said, a new kind of iPhone made specifically to address more price-sensitive markets—the markets that the iPhone 4 and 4S address currently—actually doesn't sound all that ridiculous these days. Apple's current strategy of selling flagship models from previous years at a discount isn't particularly well-suited to a competitive landscape where the company's competitors spit out a new phone every few weeks. We don't yet know that this "low-cost iPhone" is real, but here's why it would make sense to produce one and what it might look like.

Apple be nimble, Apple be quick

The most convincing case to be made for this new iPhone's existence isn't cost, but flexibility.

As it stands, Apple releases a new iPhone every 12 to 18 months, while competitors like Samsung introduce two or three major, high-end handsets (and a huge shotgun blast of lower-end models) in the same span of time. Generally, the strategy of constantly releasing new hardware to fill every possible real and perceived market niche is probably wrong. It's this kind of endless segmentation that makes the PC buying experience so frustrating. But the constant iteration does keep even the low-end hardware from getting too stale.

Apple has no such safeguard. The way things work now, there are at least two years between the time Apple introduces new hardware features (things like the 4-inch, 1136×640 display and the Lightning connector) and the time that those features are standard across the entire lineup. Continuing to sell older hardware like the iPhone 4 and 4S completely unchanged in the years after new standards debut is just going to slow the adoption of those standards by app developers and accessory makers.

The same is also true of under-the-hood technologies. The 4S' A5 system-on-a-chip (SoC), which continues to power a surprising number of current iOS devices, is still powerful enough to drive features like Siri, 3D Flyover in the Maps app, AirPlay Mirroring, and all of the fancy new graphical effects in the upcoming iOS 7. However, Apple's pre-iPhone 5 reluctance to include LTE in its phones means that it's stuck with 3G data speeds (14.4 Mbps on HSPA+ networks, less in other cases), and it also lacks 5GHz 802.11n (and AirDrop compatibility, to say nothing of increased speed and decreased congestion). Developing two iPhones side-by-side, one flagship device and one lower-end device, would give Apple the ability to introduce smaller features like this across the lineup while still leaving a performance gap between the two for differentiation's sake.

Cutting costs and boosting margins

Enlarge/ "Low-cost iPhone" backs have been spotted in a rainbow of different colors.

Cost-cutting has always been put forward as a reason why Apple would design a second, mid-tier device. Why not? The company is famous for maintaining high profit margins. If it could put together something for less than the iPhone 4 or 4S and sell it at the same price as one or the other of those models, that's just more money in Apple's pocket.

Consider the materials that Apple's flagship phones are typically made of: high-quality aluminum and glass. While we don't really know what Apple pays for its device enclosures, it's a pretty safe bet that the prices on these materials fall less readily over time than, say, baseband chips or SoCs, which are generally replaced by newer, better versions at a faster clip. If you have to sell a product for $450 or $549 (the unlocked prices of the iPhone 4 and 4S, respectively), your margins will likely benefit if you can get away with housing the components in plastic rather than metal. Alternatively, you could always drop the base price of the phone while keeping margins level. That could help Apple out in emerging markets and places where carrier subsidies aren't as pervasive as they are in the US.

Finally, consider that Apple's big margins come in part from its control over its supply chain. The company tends to standardize whenever it can across its Mac and iOS lineups to cut down on complexity and to get volume discounts on components. Compare the iPhone 5 to the fifth-generation iPod touch, for example, and you'll find that the two use identical display panels, Wi-Fi adapters, audio codecs, and other components. It's entirely possible that, through volume discounts, Apple could get better screens and other chips for a lower-cost iPhone without paying drastically more than what it spends for the older components shipping in the iPhone 4 and 4S.

What’s it look like?

Enlarge/ A lower-end iPhone would likely do everything the iPhone 5 can do, just more slowly.

Techdy

Now that we've established why Apple might want to develop a so-called low-cost iPhone, there are two final questions to answer: what does the phone look and feel like, and what's inside it? For Apple, the key here will be to create a product that can serve the same market that the current iPhone 4 and 4S serve without completely cannibalizing the high-end market that the iPhone 5 serves.

Pictures and video of what purport to be actual rear casings for a new plastic iPhone have been surfacing left and right over the last couple of months. These may or may not be final or even real, but they're probably indicative of what a plastic iPhone would look like—simple, multicolored plastic shells that are a bit thicker than the iPhone 5's aluminum one.

Using a shell like this would differentiate the low-cost iPhone from the high-end iPhone in the same way that the MacBook Pro was differentiated from the old white plastic MacBook. Both were reasonably well-put-together (especially once the unibody designs were released), but the Pro was always the faster and better-feeling machine.

Otherwise, these purported casings point to a low-cost iPhone with all of the hallmarks of a modern iOS device: a Lightning connector, the taller 4-inch screen, and a camera with an LED flash. One assumes that, for differentiation's sake, this low-cost iPhone will use a lesser camera than that used by the current flagship in the same way the iPad, iPad mini, and the iPod touch use lesser cameras. However, all of the software features supported by the iOS 7 camera—filters, HDR, Panorama mode, flash—seem likely to make it over intact.

The rest of the phone's insides would probably take a similar approach: offer the same platform features across both phones, just make sure that the flagship iPhone offers clearly faster and superior versions of those features. In fact, I wouldn't be surprised if this new, cheaper iPhone looked a lot like the current iPod touch with a cellular antenna (and a slightly larger battery) added. That device's A5 SoC (and its tall screen and dual-band networking hardware) can still deliver on everything iOS 7 is promising, but at this point that chip is slow enough relative to the A6 (and whatever A6 follow-up Apple might have waiting in the wings for this year's flagship iPhone) that Apple should have no problem selling many people up to the faster high-end iPhone.

It's also entirely possible that Apple would want to use an A6 for this low-cost iPhone to give it a longer lifecycle—the A5 has done a good job for almost two-and-a-half years now, but that's an eternity in smartphone SoC years. Either way, expect the chip at the heart of this new iPhone to be something we've seen before (or, at the most, something we've seen before built on a new manufacturing process that will filter out across the entire product line). Apple has enough existing chips that would be suitable for this kind of device that building something entirely new for it seems unlikely.

Apple already does this; just look at the Macs

Enlarge/ Apple refreshes its Mac hardware with new tech every year and simply maintains "low end" and "high end" versions of each.

Apple

Apple's iOS lineup is in a strange state of flux at the moment. The company offers three different iPhones, but only one of them uses its new screen and Lightning cable. It also offers three different iPads: the iPad 2 (which sells for $399 and uses the 30-pin connector), the iPad mini (which sells for $329 and uses Lightning), and the Retina iPad (which sells for $499 and uses Lightning). It's an awkward hodgepodge of old and new, and it highlights the weakness of Apple's sell-last-year's-model-at-a-discount strategy: new technologies simply take longer to propagate. The transitional period can be potentially confusing for consumers.

This year, I could see Apple cutting this lineup down to four basic products: the flagship iPhone, the "low-cost" iPhone, the full-size iPad, and the iPad mini. This would give each class of device a clearly differentiated entry-level and high-end model, and it would mirror what Apple does on the Mac side of the house to keep the product matrix from getting too crowded and confusing.

Apple doesn't sell the 2013 MacBook Air as a high-end model and then keep a 2012 model around as an entry-level unit. It maintains both an 11-inch entry-level model and a 13-inch model with a larger, higher-resolution display, and it can update both products with the new technologies every year. Mirroring this model with its iPhones is one thing that can help Apple keep its edge in an increasingly crowded and competitive mobile market.

I still hope they don't do it. They will not save much on the external materials which make up a small percentage of costs. So a cheap and ugly plastic back would be a clear case of intentionally crippling a product to not compete with other more high level apple products. And if it looks like the cases mentioned then it's UGLY.

Well, the color scheme of iOS 7 recalls the old Flower Power iMac, so why not case materials to match

I wonder if they'll manage to stumble onto a new variant of the old G4-era irony between the 'ibook' and 'powerbook' lines... At that time, the 'ibook', in white-undercoat-polycarbonate, was heavier and offered slightly worse specs; but was damned durable, given several mm of polycarbonate over its entire body(compared to the PC standard of creaky ABS). The 'Powerbook' was lighter; but made of paper-thin aluminum(elegant; but drop it and it will crumple). I've lost count of the number of optical drives that were killed by a little dent in the right place.

If Apple comes up with a substantially-plastic iPhone, it'll probably scratch fairly easily; but it won't shatter with the same enthusiasm that the gratuitously-glass-in-unyielding-steel version does. For anybody who is going to be putting it in some dreadful silicone case anyway, it might actually be an improvement...

You take a rather rosy view of Apple not introducing market segmentation for the sake of market segmentation.

Take, for example, when iPod touch devices charged $10 for major OS updates but iPhones didn't (and I've never heard a tax/accounting professional state that accounting rules made it so they had to charge). How about the 3rd gen iPod touch (with the exact same amount of ram, CPU, and GPU as the iPhone 3GS) being stuck at iOS 5 rather than iOS 6 like the 3GS ?

edit: How about fusion drives, where 3 TB + SSD is only present on the 27" iMac but the 1 TB + SSD is the top size for the 21.5" iMac ?

still having a hard time with the difference in selling a new model with old innards versus selling last years model.

The majority of consumers know nothing of the innards. Look how many android phones are sold with identical innards as new models because the case was changed. Same goes here. Change the outside and people see it as new.

I still don't get why iPhones are so pricey. My android phone is old tech, purchased new and unlocked for $50. I went to the gas station once, realized when I got there that I had forgot my wallet... Didn't matter, the station had NFC payment terminals. Tapped my ancient android phone to the terminal - Done, good to go.

If I'd forgotten my wallet and had any model of iPhone on the other hand... I would've had to drive home for my wallet.

If, big if, the cost is less than selling last year's models at a discount then how could this be anything other than a big win for Apple? They already do sell the older models for cheap. The reasoning here is sound. Not obvious to me if the new R&D, tooling, and total cost add up to less than, say continuing to sell the 4S. But the suggested benefit is big. The Lightning connector alone is such a big accessory change I can see it fracturing the 3rd party market.

I largely agree with Andrew, but I still have a hard time considering it a "low-cost" phone. I expect this phone to sell for $79 (maybe as low as $49 after promo prices). But the unsubsidized price still sits around $500. Not exactly low cost.

The internals should just be last year's parts (e.g. iPhone 5 internals), except for perhaps the cellular chip. Qualcomm is supposed to have a new LTE chip available for Apple soon (MDM9625) that will support carrier aggregation (AT&T sometime in 2014) and 20MHz LTE (Verizon, T-Mobile).

Apple's model is fine. Why do you journalists always like to push a company into markets they aren't playing in? You see it as Apple vs Google vs Microsoft or something, when its really just Apple versus their target audience (respectively the same for the latter two companies). Apple is making cash hand over fist, why water down the brand with low-cost solutions? It's not their job to get an iPhone in every hand at any cost, it's to put out a product of a certain quality that appears to a certain group of people.

I still don't get why iPhones are so pricey. My android phone is old tech, purchased new and unlocked for $50. I went to the gas station once, realized when I got there that I had forgot my wallet... Didn't matter, the station had NFC payment terminals. Tapped my ancient android phone to the terminal - Done, good to go.

If I'd forgotten my wallet and had any model of iPhone on the other hand... I would've had to drive home for my wallet.

I still say it's like buying Nike's, you're paying for the logo.

Key word being "old tech". That would be why your phone is cheap, and top end phones are not. There is also the fact that iPhones demand more because they have an aura of exclusivity around them.

Android phones typically never have the feeling of exclusivity. Which is why you so often find "buy one, get one free" deals.

I am not saying the iPhone is exclusive. Simply that consumers typically treat it as such.

Although it might be positive for the electricity generation potential of the rotating corpse of Steve.

The same Steve who stood onstage at WWDC 2008 and introduced the iPhone 3G with a plastic back... and continued to sell the same form factor, with a plastic back, for over two years?

Eh yes? All they could do back then was plastic backs after all. As the article mentioned they also had a plastic macbook then. But going back to plastic for making it cheaper and uglier? So not to compete with the high end version? Not a Steve or apple move.

If Rolex launched 100USD watches, they'd loose their luxury market as well. People aren't paying 10.000USD for Rolex watches because they're good watches, they're paying to belong to what they view as a exclusive and better part of the population.

Apple would find the same about their customers, and be back with being a niche manufacturer for people working with graphics.

Apple's model is fine. Why do you journalists always like to push a company into markets they aren't playing in? You see it as Apple vs Google vs Microsoft or something, when its really just Apple versus their target audience (respectively the same for the latter two companies). Apple is making cash hand over fist, why water down the brand with low-cost solutions? It's not their job to get an iPhone in every hand at any cost, it's to put out a product of a certain quality that appears to a certain group of people.

They want to establish a foothold in India and China, though in China they sell pretty well anyhow so...

In any case Nokia has no problem selling an Lumia 521 at tmobile for $150, and it is getting it marketshare. It's so cut throat though it doesn't even have any form of flash.

Although it might be positive for the electricity generation potential of the rotating corpse of Steve.

The same Steve who stood onstage at WWDC 2008 and introduced the iPhone 3G with a plastic back... and continued to sell the same form factor, with a plastic back, for over two years?

Eh yes? All they could do back then was plastic backs after all. As the article mentioned they also had a plastic macbook then. But going back to plastic for making it cheaper and uglier? So not to compete with the high end version? Not a Steve or apple move.

Huh the first iPhone was Aluminum as well?

Yes, the usual shiny back that gets hairline scratched withing minutes of opening

Apple should release a risky, possibly margin-killing new model because it would standardize the connectors?? That's moronic.

No, it isn't. They did exactly that with the iPad mini, after all.

Quote:

The author makes no valid assertion of exactly what the differentiation between a hypothetical low cost model and the high end one would be. The processor? Apple is trying to cure the idiotic PC marketplace fascination with processors, clock speeds, and the like.

No it isn't.

Quote:

Your phone is not a spec sheet. Your phone is now what you can do with it, and 99.99% of people couldn't give two craps what processor is in the thing. Yes, there are maybe one in ten thousand iPhone buyers who care about the spec sheet. The rest of us don't, thanks.

The author sounds like he has a B.A. in IT bullsh*t to me.

So do you.

It makes sense to standardize and reduce cost around manufacturing, especially at the volumes that Apple ships in.

Apple's model is fine. Why do you journalists always like to push a company into markets they aren't playing in? You see it as Apple vs Google vs Microsoft or something, when its really just Apple versus their target audience (respectively the same for the latter two companies). Apple is making cash hand over fist, why water down the brand with low-cost solutions? It's not their job to get an iPhone in every hand at any cost, it's to put out a product of a certain quality that appears to a certain group of people.

I'm not making the argument you seem to think I'm making. This is a better way for Apple to play in a market it's already playing in with the 4 and 4S, not some grab for people who would otherwise buy a Tracfone.

Apple's model is fine. Why do you journalists always like to push a company into markets they aren't playing in? You see it as Apple vs Google vs Microsoft or something, when its really just Apple versus their target audience (respectively the same for the latter two companies). Apple is making cash hand over fist, why water down the brand with low-cost solutions? It's not their job to get an iPhone in every hand at any cost, it's to put out a product of a certain quality that appears to a certain group of people.

Because part of the power of the iphone Eco-system is its marketshare. That is dropping.

The Nokia 5xx super cheap (200$ unsubsidized) yet capable windows phones are eating into their market from the bottom and a sign of things to come.

If apple doesn't do something about it before it happens they're at risk of losing the "of course their is an app for that" mentality

Bringing out a low-end or mid-range phone could help, and if they can do it without affecting the top end (which I suspect the plastic back will enable) then they can protect or even grow their marketshare, and thus maintain the power of the ecosystem

The way things work now, there are at least two years between the time Apple introduces new hardware features (things like the 4-inch, 1136×640 display and the Lightning connector) and the time that those features are standard across the entire lineup.

I just don't see this being relevant in the phone space. It makes sense to have a high end and low end in other product categories, and Apple has done this for a long time. But in the phone space, the individual consumer is constrained to move at the same pace as their carrier contract, which is generally 2 years. By having an annual release cycle, consumers just get "every other phone." It doesn't matter if some new feature comes out the next year after you get your phone, you're not going to get it anyway. You have to break contract and are heavily penalized if you do.

Basically, "the new shiny" just doesn't mean as much with phones. As long as there's a new model available at the end of the 2 year contract, and it's better that what's in hand now, people will be happy. If Apple does indeed release a "cheap end" iPhone, the move just won't make sense to me.

While I'm sure the factors listed in the article influenced the decision, the real driver is much more straightforward: China Mobile.

China Mobile is the biggest mobile carrier in the world, with more than 700 million subscribers, and has long been a target for Apple.

However, there have been a number of sticking points in reaching a deal. In the past, the lack of support for TDS-CDMA, revenue sharing for the App Store and handset exclusivity were reported as sticking points. However, the big issue was always price. China Mobile simply weren't willing to pay Apple's price for the iPhone, particularly when their customer base is less tech-savvy and wealthy than that of the other Chinese carriers, such as China Unicom and China Telecom.

Launching a lower-cost iPhone is absolutely vital to finally sealing a deal with China Mobile. Chinese analysts have estimated they could sell ten million handsets in the first month if they manage to reach an agreement. That's a pretty big incentive to develop a lower-cost handset.

SJ is probably rotating so hard in his grave that it's starting to affect the rotary axis of Planet Earth...Apple didn't become one of the biggest corporations by selling entry-level products which compete with the plastic crap sold by their asian competitors.

It becamse biggest corporation by having first adopter advantage on wide use of touch screens.

As it stands Apple is not sufficiently gaining market share in Asia simply because the market is flooded with alternatives that works just as well at fraction of the price.